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379

ECONOMIC ANALYSIS OF HIGH-DENSITY APPLE PLANTATION SCHEME

IN JAMMU AND KASHMIR

Bakhtaver

Hassan a,

Mahua

Bhattacharjee b,

Shabir A Wani c

a Research Scholar & Visiting Faculty; Amity School of

Economics, Amity University, Noida, Uttar Pradesh, India b Professor; Amity School of Economics, Amity University,

Noida, Uttar Pradesh, India c Head of Department; Agricultural Economics and Horti-

Business Management, SKUAST-K, Shalimar, Srinagar,

Jammu and Kashmir [email protected], (Corresponding author)

Corresponding

author

ARTICLE HISTORY:

Received: 12-Mar-2020

Accepted: 13-May-2020

Online Available: 15-Jun-

2020

Keywords:

Horticulture,

Net present value,

Yield,

Kashmir,

Break-even year,

Net revenue,

Profitability

ABSTRACT

This paper evaluates the performance of the high-density apple

plantation scheme, launched in 2016 in Jammu & Kashmir, India to

boost both productivity and production of apples, amidst the stagnancy

witnessed in the sector. Primary data was collected from apple farmers

in two districts, Kulgam and Pulwama. The qualitative techniques

were used to estimate the yield, establishment cost, and break-even

year of the different orchard densities. Multiple Regression Analysis

and multivariate statistical techniques were used for yield-forecasting

and estimation of Net Present Value and Internal Rate of Return

respectively. The results show that the yield has increased by two-five

times than the traditional orchards. Break-even year for different

densities without government was found to be 6-years while with

government support it went down to just 4-5 years. Net Present Value

and Internal Rate of Return, further substantiate high-profitability and

early returns in these orchards. Further, it was concluded that the

government subsidy provides significant support to the farmers in two

main densities - 2200trees/hectare and 3300trees/hectare. Thus, the

government should broaden the scheme and make it more inclusive for

the overall development of the sector.

Contribution/ Originality

The study provides a foundational pathway to research regarding the economic analysis of high-density

orchards in Jammu & Kashmir. It is the first study that deals extensively with the present and prospects

of the high-density orchards in the region. The results of the paper suggest that the government should be

more inclusive and provide due support to the farmers for establishing these highly profitable orchards.

DOI: 10.18488/journal.1005/2020.10.1/1005.1.379.391

ISSN (P): 2304-1455/ISSN (E):2224-4433

How to cite: Bakhtaver Hassan, Mahua Bhattacharjee and Shabir A Wani (2020). Economic analysis of

high-density apple plantation scheme in Jammu and Kashmir. Asian Journal of Agriculture and Rural

Development, 10(1), 379-391.

© 2020 Asian Economic and Social Society. All rights reserved.

Asian Journal of Agriculture and Rural Development Volume 10, Issue 1 (2020): 379-391

http://www.aessweb.com/journals/5005

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Asian Journal of Agriculture and Rural Development, 10(1)2020: 379-391

380

1. INTRODUCTION

Agriculture continues to be the dominant sector in the Union Territory of Jammu and Kashmir.

Around 70% of the population of the Union Territory is directly or indirectly dependent on

agriculture (Shaheen et al., 2019). In terms of GSDP- Gross State Domestic Product, agriculture

contributes 17.2% compared to the national contribution of 15.5% in 2019-20 (Government of

Jammu and Kashmir, 2017a). The growth-rate of Agriculture in the Union Territory was 24.6 % in

2015-16 and 8.4% in 2016-17 respectively, while the national average has been hovering around

2.9% (Government of Jammu and Kashmir, 2017b).

Horticulture is the most important driver of agricultural growth rate in the Union Territory and

contributes nearly 40% to the total output from agriculture (Malik, 2013). It is regarded as a sunrise

sector in the region with nearly seven lakh families and 33 lakh people directly or indirectly

involved in the sector (Jha et al., 2019, Rather et al., 2013). It is one of the thrust areas of the

economy of the Union Territory.

Apple significantly contributes nearly 60% to the total horticultural output in Jammu and Kashmir.

About 50% of the area is covered under the apple and there is a 6 percent growth in the annual

production of the crop (Government of Jammu and Kashmir, 2017a). In 2018-19, the total

production of apple from the Union Territory was 19 lakh tonnes which were nearly 77% of the

total production of the country as a whole (Horticulture at Glance 2018, National Horticulture

Board). In terms of economy, the sector is ever-increasing with an annual export of more than 70

billion from the fruits alone (Naqash et al., 2019).

Horticulture has tremendously grown in Jammu and Kashmir from the last five decades. The area

and production of the horticultural crop have consistently increased by three-fold (300%) and ten-

fold (985%) respectively (Table 1). In the meantime, the productivity has witnessed a four-fold

jump which is higher than the two-fold national average. While the acreage under Apple has

witnessed a fall from 55-56% to 48%, however, the production has increased by manifolds (Hanan,

2015).

Table 2, clearly depicts that the productivity or the yield per hectare of Jammu and Kashmir has

been higher than the national average. For instance, in Apple alone, the UT’s average yield is 11.43

tonnes/hectare which is higher than the national average of 9.73 tonnes/hectare. Himachal Pradesh

which contributes 21% to the total production, has an average yield of 6tonnes/hectare which is

two-time lower than yield per hectare of Jammu and Kashmir (Malik and Choure, 2014). In Walnut

too, there is a large difference in productivity between Jammu and Kashmir and the second largest

producing state-Uttarakhand (Taili, 2014). However, when we compare this average yield of

Jammu and Kashmir and India as a whole with that of the World Average, we see a considerable

difference of around 40 tonnes/hectare. The productivity of developed countries in temperate zones

for instance Italy, Netherlands, New Zealand near almost 70-75tonnes/hectare (Robinson et al,

2004).


381

Table 1: Growth trend of horticultural crops in Jammu and Kashmir

1974-75 2000-01 2018-19

Area

(hectares)

Production

(Metric tonnes)

Productivity

(tonnes/ha)

Area

(hectares)

Production (Metric

tonnes)

Productivity

(tonnes/ha)

Area

(hectares)

Production

(Metric tonnes)

Productivity

(tonnes/ha)

Apple 46189 190452 4.12 88149 751310 8.52 164742 1882319 11.43

Cherry 654 510 0.78 2368 5293 2.24 2713 11789 4.35

Pear 2296 7655 3.33 9169 31324 3.42 13945 86034 6.17

Almond 9361 1525 0.16 18059 10901 0.60 5588 10326 1.85

Walnut 13246 10520 0.79 59900 83399 1.39 84777 279422 3.30

Others 10740 5502 0.51 41394 49573 1.20 72334 76453 1.06

Total 82486 216164 1.62 219039 931800 2.89 344099 2346343 4.69

Source: Directorate of Horticulture, Jammu and Kashmir, 2019

Table 2: Comparative yields of horticultural crops in 2018-19. (tonnes/hectare)

Crop JK Average Yield National Average World Average

Apple 11.43 9.73 55-63

Pear 6.17 5.3 55-60

Peach 2.16 3.6 15-20

Cherry 4.35 3.03 9-11

Almond 1.85 0.7 3-5

Walnut 3.3 1.64 6-8

Others 1.06 1.63 5-7

Source: Directorate of Horticulture, Jammu and Kashmir, 2019. FAO, 2019. Horticulture at a Glance, National Horticulture Board, India, 2018-19


382

The recent rollout of the High-Density Apple Plantation scheme by the Department of Horticulture,

Jammu and Kashmir is extremely important to increase productivity and production of Apples in

Jammu and Kashmir. In Himachal Pradesh, the production and quality of apples have improved

substantially (Singh et al., 2012). Intensive orcharding is the most efficient technology evolving in

horticulture. The early gestation period, high-quality produce, and higher productivity help the

farmers to generate high returns (Badiu et al., 2015). The yield per hectare increases at least twice

than that in traditional orchard systems (Singh et al., 2012). Further, the farmer has the choice to

opt for different densities ranging from 1500 trees/hectare to 5000 trees/hectare. There exists a

linear relationship between the cost, yield, and the density of the orchard. Although higher densities

are capital-intensive upfront the benefit-cost ratio in the long-term is very high (Cahn and

Goedegebure, 1992). With high-density orchards, the farmers’ net-return is substantially higher and

is an effective tool to improve total horticultural output (Meland, 2005, Sansavini et al., 1980).

Even in mango cultivation, high-density orchards provide increasingly high productivity and

therefore better returns in the market (Kerutagi et al., 2017). Jammu and Kashmir offers favourable

agri-climate conditions for the development of High-Density Apple Orchards This would result in

an increase in the production and productivity of the crop and attract low-yield rice cultivating

farmers to high-density apple orchards (Kumar et al., 2012).

1.1. Objectives

1. To make a fair assessment of the performance of the high-density apple plantation scheme in

Jammu and Kashmir.

2. To compute the profitability of the high-density orchard combinations and its relative

feasibility for large-scale development in Jammu and Kashmir.

2. DATA AND METHODOLOGY

2.1. Sample size and data collection

Primary data was collected from a sample of farmers who became the beneficiaries of the High-

Density Apple Plantation Scheme. According to Horticulture Department, Jammu & Kashmir

(2016-17), 95 percent of the farmers who opted for the scheme were from Pulwama and Kulgam,

District of Jammu and Kashmir, India; therefore, these two districts were selected. A ground-level

survey was conducted to identify the beneficiaries/farmers from different villages in these districts

during December 2019 and January 2020. During the survey, 37 farmers from 15 villages in

Kulgam District and 48 farmers from 18 villages in Pulwama District were identified, who adopted

the scheme in the first year. Damhal, Frisal and Mohammadpura villages from Kulgam District and

Chakoora, Chatapora, Rajpora, Heff, Dadsara, and Chersoo villages from Pulwama District were

the most prominent villages where the scheme was widely adopted. Finally, data were collected

through a personal response questionnaire from these 85 farmers/beneficiaries from the two

districts.

The farmers were divided into four major groups based on their land-size and the corresponding

tree-density was recorded (Table 3). Four main densities of orchards were found in the region. An

important correlation was developed between land-sizes of the farmers and the tree-densities. Data

shows that almost 68.23 percent of the farmers chose tree-density of 2200trees/hectare, 18.82

percent chose 3300 trees/hectare, and 8.2 percent of farmers chose 4400 trees/hectare. Out of the

seven farmers opting for 4400 trees/hectare, 85.7percent farmers belonged to small and marginal

category (<1 hectare).


383

Table 3: Farm size of the sampled orchardists along with their respective choices

Size of Farm Number

of Farms

Percentage

with 1100

Trees/Ha

(3mx 3m)

Percentage of

farmers 2200

Trees/ha (3m

x 1.5m)

Percentage of

Farmers 3300

Trees/ha (3m

x 1m)

Percentage of

Farmers

with 4400

Trees/ha (2.25

x 1 m)

Marginal (<0.1

hectare) 20(23.53) 5 70 20 5

Small (0.1-1 hectare) 40(47.05) 7.5 65 15 12.5

Medium (1-2

hectares) 21(24.7) 0 71.43 23.80 4.77

Large (>2 hectares) 04(4.7) 0 75 25 0

Total 85 4.7 68.23 18.82 8.2

parenthesis denotes percent

Source: Field survey, 2019-20

2.2. Yield and production data

Primary and secondary data were collected to estimate the yield per hectare. Data regarding the

annual production of apple boxes were collected from the respondents. Data for weight and price

was collected from the Horticulture Department, Jammu and Kashmir. The price of each box

depends on the particular Grade of Apple. Grade A, B and C apples are priced at 0.8 USD/kg (60

INR/kg), 0.53 USD/kg (40 INR/kg) and 0.32 USD/kg (24 INR/kg), respectively (NAFED, 2019).

The gross weight of each box is 18 kgs while the net weight is 16kgs. Using mean and standard

deviation, the average price of each box was taken as 9.33 USD/box (700 INR/box). Yield and total

production from the sample were therefore calculated. Yield per hectare was taken as

tonnes/hectare of the four different densities of the orchards.

2.3. Yield forecasting

Different models in machine learning are used to forecast the crop yield. Regression analysis was

used to estimate the yield of the crop posts in the fifth year. The first few years of the apple

orchards have shown a proportionate development of the yield compared to earlier studies made by

Cahn and Goedegebure (1992) in the Netherlands. Primary Data was collected from the

respondents while the secondary data was collected from the Department of Horticulture, Jammu

and Kashmir to form an organized dataset. The dataset included data on irrigation, rainfall, acreage

under the orchards, input supplies like pesticides, fertilizers, manure, quality of the rootstock, and

the soil-health. Chipanshi et al. (2015) considered a linear regression model for the estimation of

crop-yield forecasting in Canada.

The model in which the value of R-square is higher while the value of MPPE-Mean Percentage

Prediction Error and RMSE- Root Mean Square Error is lower, is considered the most accurate

model for forecasting the crop yield (Shastry et al., 2017). Multiple Regression Model was used in

forecasting the yield for 20 years (R-Squared=0.92).

2.4. Establishment and maintenance

Primary Data was used to compute the total establishment cost which is one of the important

parameters in the development of the orchards. The cost analysis of the establishment of the

orchards helps the farmers to plan economically. In this regard, since the scheme had an inbuilt

subsidy clause of 50 percent to the farmers in two major densities- 2200trees/ha and 3300trees/ha.

It is therefore important for the government too, to analyse the establishment cost.

The total cost of the orchard majorly includes:


384

a. Non-Harvest Variable Cost which includes land development, drip-irrigation, plant-material,

fertilizers, pesticide, and development of the trellis system.

b. Harvest Variable Cost which includes Harvesting, Picking, Sorting, Transportation, and

Supervision.

c. Fixed Cost which includes Land Costs (Rental Value), Depreciation, and Interest Cost.

An important feature of the analysis is that interest cost in the two main orchard combinations

(2200trees/ha and 3300trees/ha) kicks in the fourth year because of the government support in the

first three years. Therefore, Net-Cost computed in the study incorporates this important factor.

2.5. Break-even year analysis (payback period)

Break-Even Year Analysis was done to estimate the year in which the accumulated revenue of each

orchard combination will be equal to the accumulated cost (establishment and maintenance cost

until that year). The purpose of the break-even analysis is to assess how early the value of

production kicks in so that the farmer gaining net profit (Cahn and Goedegebure, 1992). Post-

break-even year, the farmer starts profiting from his/her orchard system. The fixed costs remain

constant while only the variable costs are varied for the calculation of the break-even year. Break-

even Analysis is very useful as a management tool, as it is simple to apply and understand and

readily applicable in farm management. An investment with early break-even year is the most

desirable one, however, there are shortcomings in this, as early break-even year (payback period)

may also come with lower long-term returns. Therefore, the Net Present Value and Internal Rate of

Return is used to analyse the long-term impact of the likely investment in the orchards.

2.6. Net present value and internal rate of return analysis

Net Present Value is simply the net cash inflow or the revenue generated over a while from an

investment. It is therefore used to determine the profitability of an investment. Higher the value of

Net Present Value (NPV), profitable the investment (Ivey, 1990).

Internal Rate of Return (IRR), also determines the profitability of the investment. It simply

estimates the expected rate of growth of an investment. It is more useful than the CAGR-

Compound Annual Growth Rate as it takes into account all the cash inflows over the period while

CAGR takes into account the initial and final inflows only. Both NPV and IRR are extremely

useful for the assessment of the orchard combinations. While NPV gives the amount earned by the

farmers over the discount rate (usually the interest rate), the IRR gives the actual percentage return

of the farmers’ investment.

The formula for Net Present Value,

𝑁𝑃𝑉 = ∑.

𝑘

𝑛=1

(𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡).𝑛(1 + 𝑑)𝑛

Where “k” is expected life of the orchards, “n” is the time period for the analysis, “d” is the

appropriate discount rate and (Total Revenue- Total Cost) is the net accumulated revenue in the

time period, “n.”

The formula for Internal Rate of Return

0 = 𝑁𝑃𝑉 = ∑(𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡).𝑛

(1 + 𝐼𝑅𝑅)

𝑘

𝑛=1

− 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡

Where, “k”, is the expected life of the orchards, and NPV is the Net Present Value of the different

orchard combinations.


385

3. RESULTS AND DISCUSSION

3.1. Yield and production

Yield per hectare or productivity is one of the most important parameters for assessing the

performance of the crops. Table 3, shows that the yield per hectare in all the orchard combinations

increases linearly with time from the second year (Year 1). In the lowest tree-density orchard, the

yield per hectare was 0.64 tonnes/hectare in the first year which increased to 21.76 tonnes/hectare

in the fourth year. In orchards with density 2200 trees/hectare, the yield has increased from 0.912 to

29.6 tonnes/hectare during the same time. Similarly, the yield in the higher-density orchards has

increased substantially giving a push to the sector. The productivity is increasing proportionately

which is consistent with Cahn and Goedegebure (1992) analysis of the high-density orchards in the

Netherlands.

Table 4: Yield per hectare of different tree-densities

YEAR 1100 2200 3300 4000

YEAR 1

YEAR 2 0.64 0.912 1.104 1.6

YEAR 3 11.824 19.936 23.296 35.12

YEAR 4 21.76 29.6 36.56 49.552

YEAR 5 25.968 36.56 48.288 59.344

YEAR 6 31.648 45.44 52.96 63.792

YEAR 7 40.08 52.864 60.704 72.304

Source: Field Survey, 2019-20

The orchards are in their fifth year with three years of production and therefore have not reached

the full potential. The yield of upcoming years from fifth to seventh comes to be consistent with the

current development based on the input parameters. In the seventh year, the yield for orchards of

density 3300trees/hectare will be 60.7 tonnes/hectare, this is comparable with the yield in

developed economies.

Table 5, shows the number of apple boxes produced from the given sample under study. The

production has increased considerably in all the tree-densities. When compared with the analysis

done by Shaheen et al. (2019), in the fourth year of these orchards the number of boxes harvested

per hectare is higher than the production of a full-grown traditional apple orchard in the region. The

production will reach 52784 kgs and 60704 kgs in 2200 trees/hectare and 3300 trees/hectare

respectively which is three-four times higher than that of the traditional apple orchard systems.

Table 5: Number of apple boxes produced in different densities (trees/hectare)

Tree-Density (trees/ha) 1100 2200 3300 4400

Year 1 (2016)

Year 2 (2017) 20 40 60 100

Year 3 (2018) 739 1246 1456 2195

Year 4 (2019) 1360 1850 2285 3097

Year 5 (2020) 1623 2285 3018 3709

Year 6 (2021) 1978 2840 3310 3987

Year 7 (2022) 2505 3304 3794 4519

Total Boxes 8225 11565 13923 17607

Source: Field survey, 2019-20

Gross Weight of each box = 18 kgs., Net weight of each box - 16 kgs


386

3.2. Establishment and maintenance cost

The establishment cost shows a linear relation with the tree-density (Figure 1). This cost majorly

includes non-harvest cost and fixed costs like land rent and depreciation of the machinery. In

higher-density orchards, there is a slight dip in the establishment cost, possibly because of same

fixed costs for all the orchards as well as due to discount rates that apply in procuring material for

the development of the orchards. This trend is also consistent with the study done by Cahn and

Goedegebure (1992).

Figure 1: Establishment Cost with respect to tree-density

The maintenance cost varies according to the orchard density, as the supervision and tree-training

costs increase with an increase in the tree-density. The harvesting and transportation cost increases

with the increase in the production for each orchard combination with time. These costs show a

linear relationship with the tree-density of the orchards. The profitability of the orchard

combinations depends on the difference between the total costs and the total revenue. Higher the

economic efficiency of the orchards, the higher the profitability. Among small and marginal

farmers, the upfront establishment cost is therefore an important parameter to assess how they

adopt the new high-density scheme. For instance, for a marginal farmer (<0.1hectares = 2 kanals),

the total upfront cost ranges from 3.2 thousand1 USD (equivalent to 0.24 million INR) too 6.8

thousand USD (0.51 million INR) which is extremely high. But the same cost when subsidized

might seem favourable to the farmer as he pays just 50% of the total establishment cost.

3.3. Break-even year analysis

The farmers start harvesting apples only in the second year of their orchards (Table 6). The value of

production or the revenue in the second year of the orchards is very low, however, the early

gestation period is an important outcome here. Different orchard combinations with their different

yields (Table 4) have different values of production annually. For 1100trees/hectare orchards, the

farmers earn 6.8 thousand USD (0.51 million INR) in the third year, it is 11.62 thousand USD (0.87

million INR), 12.59 thousand USD (1.019 million INR) and 0.48 thousand USD (1.536 million

INR) for 2200trees/ha, 3300 trees/ha and 4400 trees/ha respectively. This increases to 12.67

thousand USD (0.95 million INR), 17.28 thousand USD (1.296 million INR), 21.33 thousand USD

(1.6 million INR) and USD 28.89 thousand (2.167 million INR) for 1100 trees/ha, 2200trees/ha,

3300 trees/ha and 4400 trees/ha respectively in the fourth year. Therefore, the value of production

per hectare has increased significantly for the farmers from 9.36 thousand USD (0.702 million

INR) per hectare in developed traditional orchards (Naqash et al., 2019) to 12.73 to 22.92 USD

1 1 USD = 75 INR (approximate exchange rate in 2020)

0

10

20

30

40

50

60

70

1100 2200 3300 4400

Co

st o

f T

rees

/hec

tare

in 0

00

' US

D

Tree-Density per hectare


387

(0.955- 2.196 million INR) in only the fourth year of the different orchard combinations in the

high-density orchards.

Break-Even Year is crucial for the farmers in the region. As the establishment cost is already high,

so the farmers demand early and higher returns to repose their faith in modern-day farming. Table

6, shows the net accumulated cost in the first four years of the orchards. Net accumulated cost is the

total cost excluding the total revenue earned by the farmer during the four years (Net Accumulated

Cost = Total Cost - Total Revenue). The different combinations of the orchards warrant different

treatment in the analysis, as two combinations (2200trees/density and 3300trees/density) are

supported by the government.

Table 6: Net Accumulated Cost in the first four years of the Orchards (in thousand USD)

Tree density 1100 trees/ha 2200 trees/ha 3300 trees/ha 4400 trees/ha

Cost Revenue Cost Revenue Cost Revenue Cost Revenue

Year 1 32.56

(2.442)

44.36

(3.327)

57.43

4.307

66.5

(5.054)

Year 2 2.2

(0.165)

0.37

(0.028)

4.53

(0.34)

0.52

(0.039)

5.75

(0.431)

0.64

(0.048)

6.48

(0.486)

0.933

(0.07)

Year 3 2.88

(2.16)

6.8

(0.51)

5

(0.375)

11.63

(0.872)

6.1

(0.458)

13.58

(1.019)

7.72

(0.579)

20.48

(1.536)

Year 4 3.21

(0.241)

12.67

(0.95)

7.37

(0.553)

17.28

(1.296)

8.18

(0.614)

21.32

(1.599)

10.04

(0.753)

28.89

(2.167)

Total 40.85

(3.064)

19.84

(1.488)

61.27

(4.595)

29.43

(2.207)

77.47

(5.81)

35.55

(2.66)

91.63

(6.872) (3.773)

Subsidy

21.33 (1.6) 42.63 (3.2)

Net

Accumulated

Cost

21.01 (1.576) 10.5 (0.788) -0.75 (-0.056) 41.32 (3.099)

Parenthesis denotes cost in million Indian Rupees

Source: Field survey, 2019-20. Price = USD 9.33/box = 700 INR / box = 18 kgs/box

Table 8, shows the break-even year of different orchard combinations. Without government

support, Year 6 is the break-even year for all the orchard combinations. However, the government

support in two orchard combinations proves a major difference in the net accumulated cost in the

fourth year. Orchardists with a density of 3300 trees/hectare in their farms are given the support of

42.63 thousand USD upfront subsidy as a result of which the orchardist earns profit in the fourth

year only of their orchard. The break-even year for this orchard combination is four years with

support from the government. This means 18.82 percent of farmers in the region, (Table 3) have

already started earning profits in the fourth year (2019). Similarly, for another 68.23 percent

farmers with orchards, the break-even year was Year 5.

3.4. Net present value and internal rate of return analysis

The regression analysis done, provided a forecast of yield in different orchard combinations

(different densities), for twenty years. This yield was estimated to be dependent on certain

important variables like annual rainfall, price of the produce (which was kept constant for the

period), fertilizer, and soil health. Table 7, gives the yield per hectare for the 20-year period which

was used to estimate the Net Present Value and Internal Rate of Return Analysis. The accuracy of

the regression is high as the R-squared is 0.977.


388

Table 7: Expected yields in bins per acre for the vertical axis variety/rootstock combinations

(Yield = tonnes/hectare)

Tree density (trees/ha) 1100 2200 3300 4400

Year 7 40.08 52.86 60.704 72.304

Year 8 42.48 55.76 67.2 76.7

Year 9 42.16 56.18 68.86 77.69

Year 10 41.76 56.98 68.12 77.26

Year 11-20 40.91 56.12 67.65 76.19

Source: Authors’ own analysis

Accumulated net cost in the seventh year for different orchard combination gives an optimistic

perspective of the performance of the high-density orchards in the region. The net accumulated

cost/revenue in the seventh year, therefore, for 1100trees/hectare orchard is 23.58 thousand USD

(1.769 million INR), for 2200trees/hectare it is 24.4 thousand USD (1.83 million INR) without

government support and 45.73 thousand USD (3.43 million INR) with government support. This is

very significant for the farmers as it pushes the net revenue of the farmers by over 300% in the

seventh year of the production than the traditional orchard system (Naqash et al., 2019).

Net Present Value and Internal Rate of Return enables us to understand the profitability of the

orchard combinations. At the end of the 7th Year, the Net Present value is highest for the lowest-

density orchard (1100 trees/hectare) and lowest for the highest density orchard (4400trees/hectare)

(Table 8). The reason is that the establishment cost is high upfront with respect to the high-density

orchards. Establishment cost for orchards of density 1100trees/hectare and 4400trees/hectare is

32.26 thousand USD (2.42 million INR) and 67.2 thousand USD (5.04 million INR) respectively.

Similarly, the Internal Rate of Return is highest for the lowest density orchard and vice-versa. A

high internal rate of return in the lowest density orchard means that the “profitability rate of return”

for the investment is higher and earlier than the rest.

Table 8: Economics of different densities of apple orchards

Density

(Trees/Hectare)

Accumulated

7 Year Net

Cost (000

USD)

Break-Even

Year

Net

Present

Value at 7

Years (000

USD)

Net Present

Value at 20

Years (000

USD

Internal

Rate of

Return @

7 Years

Internal

Rate of

Return @

20 Years

1100 -23.57 Year 6 41.45 150.67 19% 35%

2200 -24.4(-45.73) Year 6 (Year 5) 24.4(45.73) 160.72(182) 10% (26%) 29% (42%)

3300 -27.92 (-55.92) Year 6 (Year 4) 26(54) 175.46(203.46) 8% (25%) 29% (40%)

4400 -41.59 Year 6 17.6 209.6 11% 27%

Note: 1 United States Dollar = 75 Indian Rupees (Exchange rate, 2020)

Discount Rate – 9.5%, parenthesis indicates the break-even year and NPV and IRR with government subsidy.

Price of box = 9.33USD/box or INR700/box, which is kept constant for the 20 years. (Mean price).

But the case reverses as we analyse the Net Present Value at the 20th Year (Table 8). The highest

density orchard(4400trees/hectare) has the highest Net Present Value at 209.6 thousand USD

(15.72 million INR). Net Present Value at the 20th Year of orchards of densities 2200trees/ha and

3300 trees/ha is at 160.72 thousand USD (12.054 million INR) and 175.46 thousand USD (13.16

million INR) respectively. However, for the lowest density orchard, NPV is 150.93 thousand USD

(11.32 million INR). Therefore, Net Present Value increases with an increase in the tree-density per

hectare, implying that the highest-density orchards are the most profitable ventures even when their

establishment cost is high. Internal Rate of Return, however, decreases with an increase in the tree-

density (Table 8). Lowest-density orchard has a high internal rate of return (35 percent), while the

highest-density orchard has the lowest internal rate of return (27 percent). An important conclusion


389

drawn from this is that the higher-density orchards see a slow return on their investment as

compared to the low-density orchards but the overall profitability, as well as value, is significantly

higher in the higher-density orchards. Thus, making them the best long-term investment choice for

the farmers.

With government support for two orchard combinations, the Net Present Value and Internal Rate of

Return also shift positively. Net Present Value in orchards with densities 2200trees/hectare is 45.73

thousand USD (3.43 million INR) and 182 thousand USD (13.65 million INR) for 7-year and 20-

year period respectively. Internal Rate of Return also increases from 10 percent to 26 percent in the

7 years and 29 percent to 42 percent in the 20 years. Similarly, for the orchards with density

3300trees/hectare, NPV for 7-and 20-year period is 54 thousand USD (4.05 million INR) and

203.46 thousand USD (15.26 million INR). The internal rate of return also sees a change from 8 to

25 percent and 29 to 40 percent in a 7-and 20-year period. Therefore, government subsidy in both

these combinations drastically improves profitability and makes them extremely feasible for

farmers.

4. CONCLUSION

The study concluded that the yield in all the density combinations of these high-density apple

orchards has increased 2-5 times as compared to traditional orchard systems. In quantitative terms,

the yield has increased substantially from just 11.43 tones/hectare in the traditional orchards to

21.76 tonnes/hectare and 49.55 tonnes/hectare in 1100 trees/hectare and 4400 trees/hectare orchard

in just the fourth year respectively. While the establishment cost is considerably higher in these

high-density orchards posing a challenge for their adoption but the lower break-even year provides

early profitability, which lowers the interest cost and leads to early returns. According to the results

in the paper, the break-even year for all the orchard-density combinations is just six years, which is

lower than 11-12 years of traditional apple orchards (Ahmad, 2013). The Internal Rate of Return is

lowest while the Net Present Value is highest for the highest-density orchard (4400trees/hectare),

and vice versa. Together read, this orchard combination (4400 trees/hectare) sees a slower return

but the overall value of the return is significantly higher than the other orchard density

combinations, therefore making it the best investment choice. But the paper finds that only 8.2

percent of farmers have opted for this orchard-combination. Another striking conclusion of the

paper is that the government support has tremendously increased both the Net Present Value as well

as the Internal Rate of Return, of the two orchard combinations (2200 trees/hectare and 3300

trees/hectare). It has also lowered down the break-even year to just 4-5 years, therefore 87.05

percent of farmers start earning net profits earlier than expected. The paper concludes that the

government provides crucial support for the establishment of these orchards in Jammu & Kashmir.

The need is to broaden the reach of the scheme with proper support/subsidy being provided to all

the density-combinations, especially the highest-density orchard combination. Also, considering

that more than three-fourth (3/4th) of the farmers possess small and marginal farms, government

subsidy and support are extremely important to nudge the farmers of the region to this high-

profitability scheme.

Funding: This study did not receive any specific financial support.

Competing Interests: The authors declared that they have no conflict of interests.

Contributors/Acknowledgement: All authors participated equally in designing and estimation of current

research. Views and opinions expressed in this study are the views and opinions of the authors, Asian Journal of

Agriculture and Rural Development shall not be responsible or answerable for any loss, damage or

liability, etc. caused in relation to/arising out of the use of the content.


390

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